THEItalian Banking Association once again shines a light on the difficulties that those companies that have found themselves unprepared for the increase in interest rates, so accustomed to a cost of credit close to zero, could have.
The ECB had already raised the issue and similarly the governor of the Bank of Italy in his Final Considerations. “It seems to me that the alarm is justified ECB on possible future bankruptcies in the industry” Antonio Patuelli, president of Abi a Repubblica. “And it also appears to us that in Italy there are undercapitalised sectors: for some time we have been monitoring the construction and services on which the lighthouse is now going on".
ECB: fragile prospects for financial stability from the increase in interest rates
In the six-monthly report on financial stability, the ECB had already intervened on the subject. “The prospects of financial stability remain fragile”, due to uncertain growth, inflation which remains high and the credit crunch which continues to weigh on the balance sheets of companies, households and governments. Furthermore, “an unexpected deterioration economic conditions or a financial crunch can lead to a disorderly adjustment of prices in the financial or real estate markets”. While the vice president of the ECB Luis De Guindos, commenting on the report, underlined that the tightening on rates "can bring out vulnerability in the financial system” which must be monitored.
In his final Thoughts Governor Ignazio Visco also dedicated a chapter to the topic. “Monetary tightening also affects credit dynamics“, he stressed. “The cost of bank loans is clearly rising; the surveys conducted among intermediaries and businesses indicate a sharp reduction in demand and decidedly more restrictive conditions for accessing credit”.
Some signs of deterioration could be seen in the second half
However, at the moment, however, there are no signs of deterioration in the field, which could, if anything, be seen in the second quarter. Second Maurice Sella, chairman of the eponymous group, who spoke at the end of Governor Visco's final remarks, "it must be considered that it is also the business system that less calls for the increase in investment, which slows down when interest rates rise and that is what the ECB to reduce inflation”. Sella added that, at the moment, the expected rise in the levels of non-performing loans has not emerged "it takes 12-18 months from the rate increase to see the rise and I imagine, given that rates have risen since July 2022, that the the second half of this year will be less favorable from this point of view and will see a growth in non-performing loans”.
The testing ground for banks and businesses will be the Pnrr
The president of the ABI fears that operators were taken by surprise by the rise in interest rates, after "they had gotten used to zero rates and had even drawn up their long-term plans underestimating the cost of money factor, indeed thinking that this situation realistically unusual and temporary, it would have lasted forever”.
It is clear that a key moment to verify the relationship between banks and businesses will be when the latter need support in the Pnrr. “On the Pnrr we are therePatuelli says. “We do not fail to play our full part. However, let's be clear: no raining money for anyone, every request for funding, relating to the Pnrr or any other type of investment, is scrutinized with the usual utmost care without privileges. All in compliance with the strict European regulatory framework which is neither deactivated nor modified with respect to the interventions of the Pnrr. It is important to clarify this point to avoid interpretative misunderstandings” Patuelli tells Repubblica.
After all, “a part of construction has always lived in the short term, many companies are not inclined to look after their assets. Likewise, in services, the : indeed, I will be more precise, seaside tourism. That of the cities of art and the mountains is more attentive for a variety of reasons. The danger is that all this could lead to a business crisis and therefore to the deterioration of non-negligible parts of bank credit”.
Patuelli: It's not true that high rates favor the banks
"It is not so. Obviously they guarantee higher margins in the lending business, but it should not be forgotten that we come from six years of zero rates and another four at zero point. And then we are hit in two ways: the decrease in the value of government bonds in the portfolio leads to asset write-downs that need to be filled quickly precisely in order not to leave the rigid ratios of supervision, and then the cost of funding increases. We must continuously finance ourselves on the market and we too must issue securities with higher interest”.
